Presumptive taxation under section 44AD defeated penalty on alleged unexplained credit card payments, with business outgoings accepted as covered by declared receipts.

Penalty under section 271(1)(c) was held unsustainable where the assessee had declared gross receipts under the presumptive scheme in section 44AD. Since the accepted receipts were treated as sufficient to cover business expenditure and the scheme did not require regular books of account, the credit card payments were regarded as business outgoings sourced from declared receipts. On that basis, the addition treating the payments as unexplained could not support penalty, and the penalty was deleted in favour of the assessee.

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Issues: Whether penalty under section 271(1)(c) of the Income-tax Act, 1961 was sustainable in respect of credit card payments treated as unexplained, where the assessee's business income had been accepted under section 44AD of the Income-tax Act, 1961.

Analysis: The assessee was engaged in outdoor catering and had declared gross receipts under the presumptive scheme under section 44AD. The accepted gross receipts were considered sufficient to cover the business expenditure, and there was no requirement of maintaining regular books of account under that scheme. On that footing, the credit card payments were treated as business-related outgoings sourced from the declared receipts, and the basis for the penalty did not survive.

Conclusion: The penalty was deleted and the issue was decided in favour of the assessee.

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